Last week two announcements were made that support the claims made by yours truly regarding sales of Kindles and Sony Readers, and the corresponding rise in ebook sales that will occur in 2008.

TIME Magazine reported that sales of the 130,000 titles available in the Kindle Store represented 12% of the sales of the exact same 130,000 titles in other formats. This is a significant increase as Jeff Bezos reported at the end of May this figure was 6% of 125,000 titles.

The doubling of the percentage on a bigger base points to two very interesting trends – the first is the clearly growing number of Kindle owners – I cannot imagine that kind of ebook sales growth is possible on a similar number of devices. The device sales must be skyrocketing.

The other trend that may be exposed here is the sheer number of ebooks being purchased. Last month some of the bigger trade publishers announced they were increasing the number of titles available for the Kindle. This was done not because of any arm-twisting by Amazon – but clearly as a response to the demand. And just as lack of product has helped to keep ebooks unsuccessful to date, the opposite is helping drive consumer enthusiasm and buying.

More evidence that the e-ink based devices such as Kindle and Sony’s Reader have been selling well comes from further up the supply chain, from the screen manufacturer, PVI. As I reported in the last article, PVI manufactures the 6 inch EPD for Sony and Amazon (the iRex Iliad does not use a 6 inch screen) and in a report files in DIGITIMES last week, PVI reported “Small- to medium-size panel supplier Prime View International (PVI) saw its June sales rebound 23% sequentially to NT$663 million (US$21.79 million) as demand for niche products, including electrophoretic displays (EPDs), picked up, according to the company.” While this is hardly definitive, it should be enough to support the theory that e-ink reader sales are increasing.

This is good news for ebooks – and more good news happened with the opening of Apple’s App Store for the iPhone and iPod Touch. Even though I am not a big believer in LCD screen ebook readers (I find them very difficult on the eyes for immersive reading), I am thrilled that the iPhone/iPod juggernaut will now contain a variety of choices for reading ebooks. I look forward to seeing how ebook retailers, wholesalers, and publishers tap into this wonderful market and what inventive business models Mr. Jobs creates for ebooks. Oh, wait, Steve Jobs doesn’t think Americans read – maybe that dream of an iBooks store is a just pipe dream…

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One of the many upsides to being a publicist is getting to attend launch parties for our books. Of course, organizing them is hard work, but the night itself can be a lot of fun. We OUP-UK publicists were last week at what is shaping up to be our party of the season for the launch of Winston Fletcher’s Powers of Persuasion: The Inside Story of British Advertising, which publishes here later this week. Below are some photos from the event.

Yesterday we posted a piece written by Winston Fletcher for OUPblog on when the British led the world in advertising.

Held at London’s incredibly beautiful Somerset House, we had a wonderful turn out including many of the great and the good from Britain’s ad-land, past and present. Winston gave an excellent speech where he confessed that though he had reached the top of his profession - he is the only person to have been both the Chairman of the Advertising Association and the President of the Institute of Practitioners in Advertising - he didn’t work for long in the creative side of the business. ‘Why?’, you ask. Well, when he did work in the creative side, he was the one who came up with the strapline “Have no fear, your piles will disappear!” for a campaign. He then decided he was better suited to the business side of advertising.

Also in attendance was former government Culture Secretary Chris Smith who is the current Chairman of the Advertising Standards Authority. He is pictured below with Winston Fletcher.

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We recently launched Powers of Persuasion: The Inside Story of British Advertising by Winston Fletcher. Today, I am pleased to be able to bring you an original essay by Winston on the period where the British led the way in the advertising world. Check back tomorrow for photos from the party at London’s Somerset House.

Conventional wisdom has it that America is the home of advertising, where it all began. That is not quite right. Unquestionably America is the world’s largest advertising market, and American advertising agencies now dominate the world. But advertising began in ancient Athens (if not earlier), and advertising agencies started in Britain more than a century before they appeared in the USA. During 1970s and early 1980s British advertising led the world. It did so creatively – but it did so in other ways too, which underpinned the creativity, making it more effective and successful.

The emergence of Britain started slowly. At the Cannes Festival, which was then – and still is – the arbiter of global advertising creativity, Britain was outpaced by the USA throughout the 1960s, and in 1970 and 1971. Then the British climb began. In 1972 British and American advertising agencies took home an equal number of Gold Lions (4 apiece), and Britain won the cinema Grand Prix. The next year Britain won more awards than any other country, though most of these were Silvers.

In 1974 the British Gold rush really got going. That year Britain collected 18 Gold and Silver Lions and the Palme D’Or. In 1975 the festival moved to Venice for a year, and the British trade press headline simply read ‘Venice Goes British’. Come 1976 the festival returned to Cannes and the headline ran: ‘Britain Sweeps The Board’. The Brits had again pocketed the Palme D’Or, plus 10 of the 19 Gold Lions. In 1977 it was ‘Britain Comes Out Best Again’, with the Grand Prix for television and another 6 Gold Lions. Then, in 1978, Britain reached its zenith. The Brits won the Grand Prix for both television and cinema – a rare occurrence – and garnered a massive 80 Gold, Silver and Bronze Lions.

After 5 years at the top, there followed a couple of relatively fallow, but not wholly unsuccessful, years (1979 & 1980). But in 1981 the British made a come back (‘Britain Comes out Best Again’) with more Gold and Silver Lions than any other country. And Britain’s creative leadership continued throughout the first half of the new decade, when it collected 45 Gold Lions against America’s 23.

What caused this burgeoning of British advertising creativity? A combination of factors. Commercial television had begun in Britain in 1955, and for the first two decades British television advertising was dominated by American advertisers – particularly household cleanser and other packaged goods advertisers, whose approach to creativity was strictly formulaic. Every commercial had to abide by the ‘proven rules’. During the 1970s British advertisers started to become much more important in their home markets, and more confident, and allowed British creativity much more freedom. Creativity flowers in freedom. Moreover this occurred against the background of a recovery in Britain’s economic performance, after a long period of economic tribulation. But probably most important of all, there happened to be in London during those years a raft of quite exceptionally talented advertising people, who worked both as colleagues and as rivals to outperform each other creatively, in a highly charged competitive atmosphere.

Additionally, their creativity was underpinned by other developments which also helped British advertising leap ahead. More or less simultaneously, two London agencies (Boase Massimi Pollitt and J Walter Thompson London) invented a new system of campaign development called ‘account planning’. Account planning integrated research into the creative process in a way that had not been done before, and in a way that creative people found far more sympathetic than they had found earlier systems. Account planning spread slowly at first, but it is now generally accepted around the globe as the best way to develop new campaigns.

At the same time, in the mid-1970s. Britain developed the world’s best system of advertising self-regulation – a system that maximises creative freedoms within responsible constraints. And advertising began to be used more and more by British Governments to promote worthwhile social causes, from blood-giving to drink-less driving. Simultaneously Britain began to build what has become the world’s largest advertising archive, ‘The History of Advertising Trust.’ Out of this ferment of activity two commercial giants emerged: Saatchi & Saatchi and the WPP Group. Both joined the world’s advertising leaders, though Saatchi & Saatchi later stumbled and fell.

For the British advertising industry the second half of the 20th century was a heady era – when it reached peaks that it will probably never quite achieve again.

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Ammon Shea recently spent a year of his life reading the OED from start to finish. Over the next few months he will be posting weekly blogs about the insights, gems, and thoughts on language that came from this experience. His book, Reading the OED, will be published by Perigee in July. In the post below Ammon, an expert dictionary reader, takes a close look at the word “bailout”.

In the past few months there has been a good amount of talk about the Federal Reserve’s plan to loan a rather large sum of money to J P Morgan, in order that they might buy the fiscally challenged Bear Stearns. There seems also to be some disagreement about whether this is the right or wrong thing to do, and furthermore whether or not it constitutes a bailout. Critics of the plan are saying rather accusingly that this is a bailout - unfairly giving a hand to a large corporation. The government has been saying rather defensively that it is not a bailout - it’s merely trying to save the overall economy from further damage.

The word bailout is a fairly recent addition to our language, with its first usage dating to some time around 1940. As a noun it derives from the verbal phrase ‘to bail out’, although it is not quite clear which of the several meanings of this phrase is the parent.

Another thing about bailout that is not terribly clear is what exactly it means. Different dictionaries provide definitions that are somewhat at odds, making it difficult to pin down a completely specific meaning. So rather than quibble endlessly over whether this is or is not a bailout, I am proposing a compromise: both sides agree that it is in fact a bailout, but they each get to consult the dictionary of their choice to establish what a bailout is.

Those who oppose the Federal Reserve’s plan can point out that the Cambridge Dictionary of American English defines bailout as ‘the process of saving a company, plan, or other thing from failing by providing lots of money.’ This would bolster their claim that the Fed is courting moral hazard on a grand scale by subsidizing poor business practices, and potentially throwing away some thirty billion dollars that could help struggling homeowners.

The Federal Reserve could counter with the definition found in the New Oxford American dictionary, which states that a bailout can also be an instance of giving assistance to a failing economy, which would bolster their claim that they are acting to save the larger economy, and are not simply trying to help a privileged few.

Their opposition could then come back with the American Heritage Dictionary definition, which swears that a bailout is nothing more than ‘a rescue from financial difficulties’.

“Aha!” the Federal Reserve will cry, “we were referring to the bailout that is defined in the Random House Dictionary of the English Language, Second Edition – ‘Of, pertaining to, or consisting of the means for relieving an emergency situation’”.

Their opponents will then throw down their trump card, and cite the unshakable authority of the Merriam-Webster and Garfield Dictionary (whose cover reads ‘the 1st dictionary with attitude!’ and ‘with comics!’), which avows that a bailout is simply ‘a rescue from financial distress’.

Given that none of the dictionaries that the Federal Reserve has in its arsenal come equipped with comics it is doubtful that they will have a suitable rejoinder to this. But it doesn’t really matter – giving a name to something won’t change what that thing is, and it won’t change whether you are for it or against it. And it can be risky to give too much authority to what a dictionary says - I have a sneaking suspicion that the current President Bush has fashioned his own personal definition of what torture is based on sense 2b in Merriam-Webster’s Third New International Dictionary – ‘an extreme annoyance or severe irritation.’

Both the Fed and its naysayers should give up on quibbling about what is and what is not a bailout, and go back to quibbling about more substantial matters, like how many thesauri you could buy with thirty billion dollars.

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[A Full Disclosure Note From Evan] Let’s be clear from the start: Neither Amazon nor Sony have told me anything. I get nada, zilch, bupkis when I ask even the most circumspect questions about their respective device sales. If it has to do with Kindle or Reader, I get the standard “go away” line. I have not manipulated sales data, be it OUP’s or any other publisher. I have not analyzed Amazon or Sony ebook sales statistics or rankings. I have not found any secret documents. I have not broken into the vault, I have not cracked the code, I have not had prophetic dreams - well, not about any e-ink devices anyway…

What I do have is a subscription to DIGITIMES that has led me to some pretty outlandish and, I think, substantiated conclusions about Kindle and Sony Reader sales figures. Before you dismiss me as loopy check out the evidence…

When the Kindle first launched there were plenty of predictions about how it and its predecessor the Sony Reader would sell. Over time the chatter died down, halted partly by the Kindle going out of stock. At the end of April, the chatter returned and hit full volume after last week’s Book Expo America in Los Angeles. The catalyst was Jeff Bezos’ speech, which let out some tantalizing, yet cryptic information on ebook sales volume at the Kindle store. The chatter, as reported in the NY Times, has publishers and others speculating that Amazon has sold somewhere between 10,000 - 50,000 Kindles.

I think all the speculations are completely wrong. By my calculations, combined sales of the Amazon Kindle and the Sony Reader will be 1,000,000 units in 2008. This estimate is based on solid data.

The Evidence
Amazon and Sony both use the 6-inch electrophoretic display (EPD), also known as an e-ink screen. Both companies buy their EPD’s from Prime View International (PVI) of Taiwan. DIGITIMES, a daily news service covering the Taiwanese IT market, reported on April 18th, in a story entitled PVI EDP shipments to grow sharply in 2008, that PVI expects EPD module shipments to reach 120,000 units PER MONTH in the second half of 2008. It further explains that the unit price of the screens are $60-$70 per unit and that the current volume has been 60-80,000 units PER MONTH.

Also intriguing is the article’s claim that 60% of the EPDs go to Amazon and 40% go to Sony. This is an important factor as it implies that there is a market beyond Kindle – a very, very strong market. Taking the figures at face value, Sony was selling (or at least manufacturing) an average of 28,000 readers per month (I took 70,000 units as the average sold per month and then 40% of that). Using this monthly rate, the annual sales of the Sony Reader are at nearly 350,000 units. Using the same formula, Amazon is ordering an average of 42,000 units per month, which will add up to over 500,000 units sold this year.

With production ramping up to 120,000 units a month these numbers will look much better - to the tune of a combined 1.4 million units over 12 months! Even with the Kindle out of stock for a big chunk of the first and second quarter, combined sales of these two e-ink devices in 2008 will most likely top 1 million. If a million devices are out on the street looking to feed, and we know they primarily eat one kind of food, ebooks, then what must this mean for the ebook sales?

Jeff Bezos said last week that ebook sales in the Kindle store had hit 6% of book unit sales. What this means is that of the 125,000 titles available in the Kindle store, the sales of ebooks represented 6% of the sales of those same 125,000 titles in print formats. Another interesting thing that Bezos said was that Kindle buyers purchase at a rate of 2.5 times more than print book buyers… food for thought when thinking through your ebook strategy.

One can draw some ebook sales conclusions from this information. For example, the number 2 seller at the Kindle store is The Last Lecture by Randy Pausch. According to Bookscan, in 4 weeks this book has sold 784,158 units. For the sake of argument, lets ascribe 75,000 units (10% of total sales, a reasonable guess) to Amazon. If Kindle sales were 6%, then Amazon would have already sold 4,500 ebooks. That’s 4,500 people with Kindles buying a single title in 4 weeks!

While it’s clearly amazing that in one month an ebook can sell 4,500 units it is not the best way to calculate the ebook sales impact of Kindle and Reader. A better way to approach this is through good old-fashioned guess-timation. Taking stock of my own experience and the experiences of others I know, I found that ebook buying on either the Sony Reader or the Amazon Kindle ranges from 5 ebooks to over 100 ebooks. Assuming that anyone who buys an e-ink ebook reader is doing so to read ebooks, lets assume that 10 ebooks a year is a reasonable purchase estimate. Using this logic, we should see 10 million ebooks purchased for these two devices in 2008.

The IDPF estimates that in 2007 ebook sales income was $31,800,000 with the caveat that the actual retail income could be as much as double due to retailer discounts, so let’s assume that the sales actually totaled $60,000,000. If we use an average retail price of $12 per ebook sold, and if consumers will buy 10 ebooks a year, then they will spend $120 on average, per device. That would lead us to $120,000,000 in ebook sales for the Kindle and the Reader in 2008, double all ebook sales in 2007. (For those of you who cannot swallow the idea of 10 books purchased per device – cut it in half. The result is $60,000,000 in ebook sales – as much as last year!)

Success in technology, like everything else, leads to more success. It’s not uncommon to see five-fold growth the year following a successful technology product launch. Think iPod, think Wii, think Blackberry. Whole micro-economies emerge around products that range from accelerated content creation, and all sorts of aftermarket products and services. Versions 2.0 and beyond create better and better devices. The better the devices, the more accessories, the more content there is, and soon a whole world of business opportunity is rolling downhill picking up speed.

With this in mind, I can easily imagine the success of Kindle and Reader dramatically expanding next year and growing by a factor of five. If that happens, then the excitement of ebooks will also grow and average 20 per year and the formula leads to a completely new ebook economy. Five million devices  and 20 ebooks per device would mean ebook sales of $1,200,000,000, which, by my estimation, is 1.3% of the current global book market of $90,000,000,000.

This reminds me of a comment I heard from a music industry executive at a conference a couple of years ago. “One day there was the iPod and iTunes. The next day 20% of our business was digital. The day after that more than 50% of our revenues came from digital music. Yeah, we believe in digital music now.”

I personally don’t see publishing becoming a 50% digital business as books and cd’s are completely different animals. But I sure can see that the 3% - 4% I once predicted isn’t such a crazy notion any more. And yes, I believe in ebooks.

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Even Bill Clinton’s biggest admirers would be hard pressed to make a good case that he was as good a president as George Washington. Yet that is basically the conclusion of a 2008 Harris poll of 2300 adults in the U.S. Washington essentially tied Bill Clinton on the question “Who Was the Best President in History?” Amazingly, Washington only garnered 12% of the vote and ended up fifth on the list. Presidents like Andrew Jackson and Alexander Polk, whom historians in a Wall Street Journal poll rank in the top ten, don’t even garner 1% of the people’s vote in the Harris poll.

Perhaps this shouldn’t be too surprising. As I’ve noted elsewhere, in a test performed by the Intercollegiate Studies Institute, only 68% of college freshman knew Washington’s actual role as general and statesman in the founding of our country. The rest, almost a third of the students, thought he was a constitutional writer, a social compact theorist, advocate for states rights or a leader from Massachusetts (the last option isn’t even close; Washington was from Virginia).

Not knowing about Washington is only one area of lack of knowledge. Today there are many battles over the presence of religion in politics and government. Yet only 28% of college freshman in the ISI study correctly answered that the origin of the doctrine of separation of church and state is not in the Constitution but can be found in letters by Thomas Jefferson. The only thing the Constitution says about religion is that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.”

A microscopic 16% knew the something of the “just-war” theory. Thirty-nine percent didn’t know why the United Nations was formed. Half didn’t know how Kennedy responded to the Soviet installation of nuclear missiles in Cuba. Seventy percent didn’t know who Saddam Hussein’s supporters were in Iraq.

Beyond history the results were not encouraging either. Almost seventy percent of college freshman didn’t understand why free markets work better than centralized planning, roughly forty percent couldn’t respond correctly in defining free enterprise and seventy-five percent didn’t know that real income increased for the lower and middle classes over the last forty years in the US.

College education doesn’t help. Overall, the ISI study found that college seniors across the country also get an “F” on American civics, averaging 54% on its sixty question test. Based on their responses on “best presidents” it appears adults would fare no betterr.

Why does any of this matter? We are in the midst of a presidential election which will determine the trajectory of our nation for at least four, if not eight, years. Weighty matters are on the table, such as Iraq, economic policy, constitutional rights, homeland security, and foreign policy. If people don’t understand the fundamentals of economics, if they don’t know American history, if they don’t know our constitution, then how can they be expected to vote wisely?

How to rectify this? What we’ve been doing obviously hasn’t been working, either at the elementary, high school or college levels. All the reforms and money thrown at the system appear not to have made much of a difference. So, while I believe we must commit as a nation to fix this, I cannot say I have a lot of faith in our schools’ ability to do so. Perhaps instead, in the tradition of American independence and self-sufficiency, each of us should each pick up a few books this summer and educate ourselves.

Wonder how you would fare on the ISI civics test? Try it here.

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12 years ago I learned an incredibly valuable lesson about marketing that has influenced how I see business development and many aspects of electronic licensing. In 1996 I left my job in traditional publishing and entered the test preparation industry at a company called The Princeton Review(TPR). TPR was an incredibly well known brand and this made the company seem huge from the outside – but at its core it was very much a small operation that had managed to become a household name.

How TPR managed this feat has a lot to do with book publishing. John Katzman founded TPR at the kitchen table of his parent’s apartment in 1982. Early on, with the help of well-known NYC tutor Adam Robinson, he began to uncover the patterns and systems behind standardized tests. As Katzman’s business grew he realized he needed to create a much larger presence for his fledgling company than any reasonable marketing budget could afford. Katzman understood that brand building was an extremely expensive proposition and looked for alternative ways to create name recognition. Tapping into the brand power of the word “Princeton” was a start. However, the bigger break came from exploiting a key weakness in his competition.

The competition was Stanley Kaplan who was a teacher in Brooklyn with a gift for tutoring. In the wake of the post war boom in college admissions, more and more universities began accepting the SAT as a means for evaluating students. Kaplan parlayed this boom into a quickly growing business (in the late 1950’s he tutored my father), where he used his “secret” methods to raise scores and improve students’ grades. Stanley kept these secret tools locked in a box on his desk, thus adding dramatic effect to their importance. Over the years Kaplan grew into a national company that was eventually purchased by the Washington Post Company and is valued at nearly $2bn today.

Back in the late 1980’s, when Kaplan was still a privately held $250mm company, Katzman realized that the key to building his business would be to broadcast his “secrets” and methods by giving them away in books. Katzman had a hunch that while many students would fare well using his proven techniques, the true path to success lay in how the techniques were coached and tutored. He noted that Kaplan had never published books on the SAT because that would be giving away course secrets in low price-point books. Katzman reasoned that a student who wanted, needed and could afford a $1,000 test prep course would never think that a $20 book would replace a course.

So Katzman, hoping to exploit Kaplan’s weakness, signed a deal with Random House to publish, “Cracking the System.” With some luck and a fantastic effort by RH, Cracking the System became a NY Times best seller and went on to create a national presence for TPR as well as laying the foundation for a whole line of books published under a Princeton Review imprint.

When I entered the company a few years later TPR had already started publishing college guides. These guides had been, like the test prep industry, dominated by a couple of brands. One key difference to the approach that TPR took was that it secured digital rights for the titles so that it could build a web based platform that contained all the data found in its guidebooks. Though Random House was never thrilled with the free content being out there, TPR launched a free website that had over 2mm unique visitors a month primarily viewing the same content that was available in the books that Random House published.

So what happened to the books? By my recollection they grew about 20% per year – it seemed that the more visitors that the TPR site had, the more books we seemed to sell. Free content was driving book sales and expanding the brand! The free content was interesting, it was intriguing, it was fun to play with – but 10 years later there is still a thriving book market for college guides even though almost every company that collects college data posts the content free online. 100% free content can drive print sales!

There are plenty of stories like this in publishing – perhaps few with such a long-standing performance record. These models should be looked at very closely because they do more than just improve a brand. I think publishers can exploit individual products through similar efforts. What I mean by this has to do with free ebooks.

Wowio is a site that gets sponsors to pay for ebooks that are in turn downloaded for free by the end user. Publishers receive a minimum of $1 per download, more if a particular title attracts a particularly high end sponsorship opportunities. Typical sponsorships are sold to companies such as Verizon and Ford – companies that see college educated upper middle class consumers, you know, book buyers

I was reminded of the Princeton Review story after seeing some interesting news from Wowio. The Association of Canadian Publishers is behind an effort to get Canadian Publishers to venture into digital. Among them is the selective use of Wowio as a platform. I found this in Quill and Quire “Insomniac Press publisher Mike O’Connor is also finding that Wowio downloads, which for now are available only to U.S. users, are boosting physical sales, mostly through online retailers. “We have seen instances where there will be a spike in a particular title in downloads, and you’ll see an uptake to a certain degree at Amazon in fairly short order,” he says.”

What is fascinating about the Wowio opportunity is how the free ebooks are driving print sales. So what does this mean? In my last piece, Do I believe in Ebooks?: Part 2, I explored the notion that ebooks were best seen as a tool of convenience and not as a primary, stand alone reading experience. To that end I proposed that a license for the ebook be granted to everyone who purchased the new print book. Here we use that strategy in reverse. Instead of enhancing the convenience of print with e, we give away e to drive print book sales. The goal is the same though, stimulating the print market.

I am not advocating that we put everything in Wowio because not every title will fit the Wowio profile. I do believe however, that the publishing industry should be more aggressively looking at opportunities where free electronic content is used to generate print sales. Whether it is expanding the amount of free content on search engine discoverability programs or sending out free ebooks to loyal customers or allowing fan sites and other myspace/facebook opportunities to have more and more free content – I believe it will all result in more print sales.

But why stop there? Why not open up certain content on Google Book Search or Microsoft’s Live Search Books to be 100% free? I am quite sure that both companies could be convinced to license some content for 100% free access – which means you can experiment with this kind of model while getting paid… just like Katzman got paid to build his brand. Got a travel line you want to compete with Fodors, license them to Google and give it away on Google to build your brand. Have a series of restaurant guides to compete with Zagat, license them to Microsoft and give them away free on Live Search Books. Build your brand (while getting paid) and the sales will follow.

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In the pension community, the recent decision of the U.S. Supreme Court in LaRue v. DeWolff, Boberg & Associates, Inc. is widely perceived as a watershed development. In LaRue, a participant in his employer’s 401(k) plan claimed that the plan failed to execute the participant’s investment instructions. This failure, Mr. LaRue alleged, resulted in a lower account balance in his 401(k) account. The U.S. Supreme Court held that Mr. LaRue, if indeed harmed by the inaction of the plan’s fiduciaries, may sue for relief under the Employee Retirement Income Security Act of 1974 (ERISA).

Those who aren’t ERISA mavens can be excused for asking what the fuss is about. ERISA is supposed to protect plan participants and their retirement resources. If a plan’s fiduciaries did something wrong or failed to do something they should have done, why should it take the nation’s highest tribunal to conclude that the injured participant can obtain relief under ERISA?

The simple answer is history. The U.S. Supreme Court’s 1985 decision in Massachusetts Mut. Life Ins. Co. v. Russell raised legitimate doubts as to the ERISA remedies available to Mr. LaRue and other similarly situated 401(k) participants.

Section 409 of ERISA requires plan fiduciaries to “make good” to the plan “any losses to the plan resulting from” the fiduciaries’ breach of their fiduciary duties to the plan. ERISA Section 502(a)(2) authorizes plan participants like Mr. LaRue to sue to enforce Section 409. As Justice Thomas persuasively argued in his LaRue concurrence, it is straightforward to read Sections 409 and 502(a)(2) as together authorizing Mr. LaRue to sue the plan’s fiduciaries to pay to the plan the value Mr. LaRue allegedly lost as a result of the fiduciaries’ failure to execute Mr. LaRue’s investment instructions. Once in the plan, such funds would properly be allocated to Mr. LaRue’s account and, from there, distributed to him.

The problem for this straightforward reading of the statute was the U.S. Supreme Court’s earlier decision in Russell. In that case, the Court had characterized ERISA Section 409 as providing remedies which benefit “the entire plan.” If this observation was part of the Supreme Court’s holding in Russell, Mr. LaRue and others like him lack a remedy under ERISA Sections 409 and 502(a)(2) since they seek the payment of funds, not to “the entire plan,” but for the limited purpose of replenishing their own particular 401(k) accounts.

On the other hand, if the Court’s reference in Russell to “the entire plan” is treated as dicta, then Section 409 is naturally read as permitting Mr. LaRue’s ERISA-based lawsuit to proceed.

In LaRue, the Court characterized its reference in Russell to “the entire plan” as reflecting the predominance of defined benefit plans at the time Russell was decided. A defined benefit participant does not have an individual account in a plan or a claim to particular plan assets. Rather, a defined benefit participant has a claim for a specified benefit payable from the total pool of plan assets.

Today, in contrast, the typical ERISA-governed retirement plan is a defined contribution arrangement like the 401(k) plan in which Mr. LaRue participated. In this setting, Mr. LaRue is entitled to receive the distribution of his individual account in the plan.

Without quite saying say so, the Supreme Court in LaRue dismissed as dicta its earlier statement in Russell indicating that remedies under ERISA Sections 409 and 502(a)(2) must go to “the entire plan”:

[O]ur references to the “entire plan” in Russell, which accurately reflect the operation of Section 409 in the defined benefit context, are beside the point in the defined contribution context.

Hence, Mr. LaRue’s lawsuit may proceed under ERISA Sections 409 and 502(a)(2).

Like most important decisions of the U.S. Supreme Court, LaRue answers some questions while it creates others. Most obviously, Mr. LaRue must now, as a matter of fact, demonstrate in the federal district court that the events (or, more precisely, the nonevents) took place as he alleges. If Mr. LaRue can prevail factually, there is then the legal issue whether the fiduciaries’ failure to execute Mr. LaRue’s investment instructions constituted a breach of fiduciary duty for purposes of ERISA Section 409.

Nevertheless, in the world of ERISA law, LaRue is a significant development. LaRue affirms the ability of injured participants in defined contribution plans to sue for relief under ERISA Sections 409 and 502(a)(2). Since many Americans hold their retirement assets in 401(k) and other ERISA-regulated defined contribution accounts, the fuss over LaRue is justified.

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Stuart Vyse is Professor of Psychology at Connecticut College, in New London. In his new book, Going Broke: Why Americans Can’t Hold On To Their Money, he offers a unique psychological perspective on the financial behavior of the many Americans today who find they cannot make ends meet, illuminating the causes of our wildly self-destructive spending habits. In the podcast below Vyse talks with Oxford editor Marion Osmun.

Transcript after the jump.MARION OSMUN: Good morning, this is Marion Osmun from Oxford University Press. I am speaking this morning with Stuart Vyse, professor of psychology at Connecticut College and the author of a brand new book called Going Broke: Why Americans Can’t Hold On to Their Money. Good morning, Stuart.

STUART VYSE: Morning, Marion, great to be here.

OSMUN: Well it’s nice to talk with you. I am very excited about your book and I thought we should just start off by talking a little about what it’s about, I think that the title and the subtitle talk actually characterize what it’s about, which is the current financial crisis that many thousands of Americans are finding themselves in today and actually have been for a number of years and just to get a sense of the scale of the problem that we’re facing these days, can you give us a sense of just how many people are in financial trouble, whether in outright bankruptcy or just in serious, serious debt to the point where if just one thing goes wrong they fall through the cracks?

VYSE: Well, yeah, of course, it’s very wide-spread. Some of the figures are hard to know for sure, but estimates are that as of 2004, the average household had about $7000 in credit-card debt, and in that same year about 23% of Americans said that they had maxed out a credit card before. Before the bankruptcy bill passed in 2005, personal bankruptcies were well over a million a year. They were about 1.6 million a year. That’s come down somewhat because of the bankruptcy bill, making it a little bit more difficult to declare bankruptcy, but there are still about 700,000 people a year, at this point, declaring bankruptcy, and foreclosures are really up there at the moment and the savings rate has gone negative. People on average, americans on average spend more than they make. So, the circumstances are very tenuous for many people.

OSMUN: Yeah, well, that’s scary. The focus of your book is largely on the reasons that so many people are facing this kind of difficulty or are already into it. Can you talk a little bit about that? The book specifically addresses various social and economic trends of the last thirty years. Can you just touch on a few of them?

VYSE: Sure. Obviously, one piece of the picture is the easy availability of credit, which has exploded in the last thirty years with the development of universal credit cards like Visa and Mastercard. But also, the ways in which you can unload that credit have gotten much more sophisticated. We have 800 numbers now for ordering so you can act on impulse very quickly. The internet, of course, makes shopping a very impulsive sort of thing. And our homes have been invaded and turned into commercial marketplaces in a way that they really weren’t thirty years ago. When you were home, back then, you were pretty much insulated from being able to spend money. But now of course, the Home Shopping Network and Ebay and any other number of ways of spending money have come home, so that there is no respite, you’re always in a sense being confronted with decisions about “Should I spend, or should I not spend?”

OSMUN: Talk a little, if you would, about one of the underlying psychological phenomena that runs through the book so far as what, in addition to the social and economic trends out there, that have developed over the last thirty years, is there also a personal attribute that is part of our heritage as human beings, talk a little bit about that. In other words, the psychology of choice, and why, in this current environment, this particular trait, for lack of a better word, is so easily compromised or manipulate-able, there is a whole literature about this.

VYSE: This is actually a relatively new sort of understanding about our psychology, which is that when a choice leads to a very immediate outcome, we tend to choose differently than if we have to wait. Waiting makes us wiser about many decisions in life, and if we think in the long-term about what we really want, long term financial stability, savings, being able to live comfortably in the future, we tend to make decisions that are pretty wise. But if we’re standing in a store with a credit card in our pocket and an iPod staring us in the face, then those things all fade from view, and the iPod becomes very, very prominent in our decision making.

OSMUN: Well, the maker of that iPod wants that exactly to be the case.

VYSE: Of course, yes. That’s the reason why it’s been made so tempting is because it works well for the manufacturer and the marketplace. So, that ability to sort of manipulate delays and make things much more immediate causes us problems. We have to make much more deliberate thoughts about what is the real long-term thing that we want, and how will this immediate decision affect the likelihood of getting that larger, more important, delayed reward. It gets very complicated in today’s world to handle all these moment-to-moment decisions.

OSMUN: Well, and the pressure is so enormous from the point-of-view of the consumer economy. It’s been good for the economy that these pressures on the individual’s ability to self-limit and restrict impulse buying essentially is exactly what has driven so much growth in the last many years. The question is, really, that you do address at some length, is the need to make a balance, between what is good for the economy, at a macro-level, and what is good for individuals for their own financial health and security,

VYSE: Right. This economy, which is a very commercial economy at the moment, has grown at the expense of a lot of individuals, who are sort of quietly suffering with debts that they can’t pay.

VYSE: As technology introduces things we just had to live without before, we had no idea how it could be any different, but now, PalmPilots, computers, cell phones, these are all things that didn’t exist before, and now for many people, have reached that level where they “need” it.

OSMUN: Well, yeah. They almost become part of people’s identities. Watching these kids—they’re not always even kids, people middle-aged and up, walking around with their cell phones, talking to people, or listening to their iPods, and it’s just become part of almost what one wears.
VYSE: Right.

OSMUN: So you do delineate these kinds of phenomena that have happened apart from the trends, socially and economically, but also the technology that has driven so much of this, as well as how that affects people’s abilities to make personal choices that are a bit shrewder than in some cases. That has been the case for many thousands now that have been on the precipice of ruin. Talk a little bit, if you wouldn’t mind, about people you interviewed for the book, as a way of giving a human face to the sometimes outright tragedy of the economy we’re facing, as well as those who have not quite reached the depths of tragedy but are terribly struggling—the ones that you spoke with as you were writing the book.

VYSE: Yes, it was a really interesting exercise to seek out these people, many of them who had declared bankruptcy or who were in a serious problem with debt, and get them to talk to me about their stories. There was the woman who had always done very well academically at school, who was working at a very good job, and who decided to go to law school to better herself. She took out school loans, as most people do now, and then discovered that she couldn’t actually do it. She could not pass through law school. She had some personal problems at that time, and ended up with $50,000 in school debt and school loans and no degree, and other debts as well. So, this is just that unforeseen circumstance—attempting to do what people would want us to do—to raise themselves up and make more money, but it didn’t work in her case.

OSMUN: So she just discovered that her mind didn’t work in the way that being a lawyer or training to be a lawyer required, on some level, is what I understand. And meanwhile, she had worked other jobs…

VYSE: Yeah, she had a Master’s degree in another subject already, she had definitely done well before, so it was a new experience for her not to be able to succeed, in this case.

OSMUN: In the book, you do pay some attention to making some recommendations to people, both regular folks, like you and me, insofar as what they can do to avoid these kinds of debt problems and if they are already in debt, what they can do about it. Also, you have recommendations for broadly speaking, having to do with policy, that are really for people in Washington and in industry, what they might consider so far as what can help avoid a major kind of crash of some sort. Can you help us a little bit about both sets of recommendations?

VYSE: Sure. For individuals, I think a very important goal is to create savings. We have gone away from saving for a rainy day as a way of protecting ourselves against emergencies, and people use their credit cards now when their car breaks down or whenever they get into trouble. That works in the short run, but it creates this vulnerability, that if you ever have an income problem, either lose a job or decrease your income, then you’re in trouble. So the way to avoid that is to go back to savings. Thankfully, the new field of behavioral economics really leads to a number of good suggestions on how to make saving less painful. So I have a number of those kinds of suggestions in the book about how to save without it being painful without it being too difficult, without requiring a great deal of willpower. Also, I make a number of recommendations on how to decrease the influence of the marketplace on your everyday life.

OSMUN: Yeah, like what made me chuckle is “Kill your television.”

VYSE: Exactly. If we could all do that, that would help a lot.

OSMUN: Yeah, but in lieu of doing that you have a lot of other recommendations that make a lot of sense, in terms of, if you’re sitting at home, you don’t have to take a gun and blow your tube apart, but you can talk a little bit about what some other things are…some other ways, practical ways that you can lash yourself to the mast. And you actually do have a picture in the book of the Greek hero, Ulysses, lashing himself to the mast so he’s not lured to the dangers of the Sirens. And maybe one or two other points you might mention about people, regular folks, that are just sitting in their houses, what they might do to help themselves.

VYSE: Yes, well, obviously, since I’ve talked so much about the immediacy of purchases and how powerful that is, much of the recommendations have to do with building in delays, in asking yourself, “Is it really important that I have this thing right now, or not, and can I put that off?” If you are able to put off, even for short periods of time, certain decisions that you are about to make, often we forget other things that come forward that are more important, and we don’t make that impulsive purchase. So, those are some of the things. And the other thing is, in fact, to try and limit the impact of advertising in your everyday life, and to get rid of your television, try to avoid it outside. And of course, some of this is going to take policy decisions. I think that we’ve been sort of abandoned by our legislators in terms of putting any kinds of controls on where we have to confront advertising where we are impinged upon with decisions. Our cell phones, now are a new way to spend money. Every avenue into our pocketbook is being explored, and I think it’s reasonable for citizens to say, “Enough is enough” and “I’d like to have some quiet time where I don’t have to be confronted by advertising and the decision on whether to buy something or not.”

OSMUN: Yeah, I think the advertising needs some healthy developments on that score in terms of say, the Do Not Call registry, so that you’re not hit with telemarketers. That became quite, at least in New York State, I thought it was nationwide, where you could put your name on a do-not-call, so you’re not hit with sales calls.

VYSE: Right, that’s a great thing. It would be nice if there were something like that for the internet as well. Those are great initiatives, but there’s a lot more that could be done. I know that if you walk around any large city today, you can’t go for three seconds without being confronted by some sort of advertising, inside an elevator, in a bus, wherever you go, it’s a consumer world.

OSMUN: Well, Stuart, this has been a pleasure. I want to commend you for this book called Going Broke: Why Americans Can’t Hold On to Their Money. Also I wanted to mention that Stuart is the award-winning author of a book called Believing in Magic that was published by Oxford University Press in 1997, I think and is still in print. It’s a book about superstition, why people believe in superstition, and there’s an interesting connection between these two books, Stuart, I don’t even want to hazard what it is, but it has to do with irrational behaviors, is that right?

VYSE: That’s right. I mean, superstition is one form of irrational thinking, and this new book is about a kind of irrational decision-making that has a very important influence on all our lives. I hope the book does some good and I’m very pleased with it, it’s been great working with you Marion.

OSMUN: Well, it’s been a real pleasure for me, too. Thank you very much, and have a good day!

VYSE: You too. Thanks a lot.

OSMUN: Thank you.

VYSE: Bye.

OSMUN: Bye.

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By Evan Schnittman

In my last posting I promised to delve into my vision of the evolution of ebooks and in doing so offer a dramatic proposal to make them more mainstream and more widely used. I propose that an ebook license be granted as part of the purchase price to anyone who buys a new print book. Yes, you read correctly; the ebook is free with a new print book purchase.

I have come to this somewhat radical idea, not because I am one of the folks who believe all digital content should be free for the benefit of mankind. Nor did I come to this conclusion because I don’t believe there will ever be a place for ebooks. I came to this conclusion after becoming a fairly heavy user of ebooks and learning first hand what is best and worst about ebooks.

My thinking was somewhat influenced by the events of the last couple of weeks. First Steve Jobs is quoted about the Kindle saying “Forty percent of the people in the U.S. read one book or less last year. The whole conception is flawed at the top because people don’t read anymore.” One week later, Don Katz sold Audible, his digital audio platform and online retail store that was to spoken word recording what iTunes is to digital music, to Amazon for $300mm. Audible licenses its platform to Apple for use on the iPod/iTunes.

In my mind a connection was made between these events as I started to wonder if Jobs, smarting over the loss of Audible’s platform, was lashing out at Amazon. Then I wondered if this was a classic Jobs line – deflecting any interest in something and then a year later releasing that very thing. However, this idle speculation ebbed and a more interesting connection took its place – a link established in my mind between ebooks and audiobooks.

I have had many theories over the years about the potential of ebooks. Mostly, I argued that ebook success was predicated on the network effect of a killer device matched to an equally killer aggregation of content. With Kindle and its Whispernet (EVDO cellular) connected store accessible anywhere in the US right on the device, I thought we had found the tipping point for ebook success. While I am still bullish about the chances that ebooks will now thrive, I have evolved my thinking to see that a “thriving” ebook market will look much more like the audio book market than the print book market. (I should mention that I see the parallel only in size, scope, and type of audience, not in market factors, content delivery, cost of production, or experiential preference. Audio books are not about reading – ebooks are all about reading.)

If one looks closely at how people like me use ebooks, you will see that convenience and portability is what drives use. While ebooks have been around for nearly 10 years in fairly usable forms, the devices to read them have been terrible – until now with the recent generation of e-ink readers such as the Kindle. (Yes, there are plenty of people who are perfectly happy reading on their PDA, iphone, laptop, etc – but let’s be honest; they are a tiny and low revenue producing audience.)

The growth I see in ebooks mimics the audio book phenomenon– by connecting readers who commute or travel with the content they crave. Audiobooks have made a marketplace out of people getting book content when they cannot read and has taught people to enjoy being read to again. Similarly, Ebooks are a brilliant option when you can bring everything you are reading with you and an even better option when you can buy instantly wherever you happen to be - just as digital audio downloads onto an iPod have done for the folks who don’t want to schlep around CD’s or cassettes.

The reality is that even if the current audience of ebook users were to grow by magnitudes over the next few years, the total market would only reach 3 to 4% of print. Therefore we must admit to ourselves as an industry that ebooks will always be a small niche player as a standalone platform and make them free with new book purchases.

As noted in the last piece, the problem with ebooks is that they are currently sold only as ebooks – which means they lack permanence and physicality. The permanence issue has more to do with the cult of books than anything. I, like many people I know are can be called “snobbish” about books – like to keep them as artifacts and display them. Furthermore, while the portability of ebooks is amazing, I cannot imagine curling up with a device and reading by the fire… or in bed, or even in my favorite chair. When portability isn’t a factor, ebooks pale in comparison to print books. Ebooks are solely a product of convenience.

So, if ebooks are in fact very much like audiobooks, why should they be free with print when audiobooks are often more expensive than print? Audiobooks are a non-reading experience and therefore carry an additional set of production and talent costs, and have a ubiquity of preferred devices for replay. Therefore audiobooks garner their own unique pricing. Ebooks have nearly none of the factors to warrant their own pricing beyond that of a niche market.

Making ebooks free with new print books will be an operational puzzle that most will scoff at. While there certainly are huge issues to overcome, there are already many initiatives and ventures in place that make such a notion feasible. For starters, publishers and their production companies have for years been outputting ebooks as part of standard production processes. More and more are now moving to the IDPF’s epub XML ebook standard, which means there will be little issue with getting smartly formatted ebooks from publishers. Also with all the competition and noise surrounding repository services by publishers, distributors, and retailers, there will be many options ahead for cost effective storage and distribution of ebooks.

Offering ebooks with print could create significant value-added marketing and merchandizing programs. Publishers, retailers, even wholesalers could dramatically benefit from such a plan as consumers could be asked to join affinity and membership programs, enroll in online ebook clubs, and register with publishers in order to download their books. Want your free ebook? Join our readers club and you can download it. Just a bit of info required – by the way, mind if we email you when a new title arrives?

Big retail and publishing operations would easily be able to start or enhance current buying and discount clubs to include registration that tracks what titles customers have purchased and now have erights. Small stores and publishers could work with companies such as Baker and Taylor and Ingram - the latter of which is already deeply invested in large scale ebook repository development. Even the corner store on Main Street will be able to offer a customer ebooks on their customized corner of a distributor’s website. This will be a key value that distributors will provide their customers.

It goes without saying that used books would of course specifically NOT come with an ebook license.

In the end this could be a marketer and merchandiser dream. I believe moving to free ebooks with the purchase of a new print title would cost or lose the industry nothing in sales as ebooks would still be available for individual purchase for those who don’t want to spend on print. What we would gain is that books – print books - would increase in value and utility. Reading – pronounced dead by Steve Jobs just a couple of weeks ago– could receive a huge boost if it becomes easier and much more convenient. Buying a book and knowing you can always download the ebook if you need it would a very powerful incentive.

Who knows, over time, giving everyone an ebook with the print version may actually create more native ebook readers and expand the market share beyond what we can imagine today.

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